How Copyrights Suppress Innovation

By Brian Fung

April 2, 2013

U.S. copyright protections don't promote innovation. They stifle it.

That was one of the arguments that got intellectual-property reformer Derek Khanna fired from his job last year at the Republican Study Committee, a policy shop for the House GOP. The problem, Khanna said, was that too much copyright protection encourages the country's creative class to make a living suing other people instead of coming up with ideas. Brilliant inventions will be quashed, thanks to aggressive infringement lawsuits.

Shockingly, the recording industry didn't appreciate Khanna's critique of the system. Within weeks, it became clear that the young Hill staffer's comments would cost him his job. But the question stands: To what extent do the country's current intellectual-property safeguards actually promote innovation like they're supposed to?

Heidi Williams is an economist at the Massachusetts Institute of Technology. In a forthcoming paper in theJournal of Political Economy, she argues that copyrighted content enables some discovery, but it doesn't lead to nearly as much learning as content that's governed under a free and open license.

In the late 1990s and early 2000s, for example, scientists at the Human Genome Project were trying to comprehensively sequence people's DNA. Every gene they identified was plugged into a giant repository and made available to other researchers. Partway through the process, a company named Celera decided to start sequencing genes, too. But instead of adding its findings to the public domain, wrote Williams, Celera walled off its data with copyright protections:

This IP [intellectual-property protection] enabled Celera to sell its data for substantial fees and required firms to negotiate licensing agreements with Celera for any resulting commercial discoveries, even though it was publicly known at the time that all of Celera’s genes would be sequenced by the public effort, and thus be in the public domain, by 2003.

Celera probably made a lot of money between the time it completed its genetic research and when the Human Genome Project caught up.

Forget the duplicated effort, though. Williams also found that the Human Genome Project was nearly twice as fast at discovery as the Celera project. Using a standard measure of academic-knowledge production, she compared the number of papers published using HGP data and Celera data. By 2009, genes that had been sequenced in 2001 from HGP had produced an average of 2.1 academic papers a year, while genes sequenced that same year by Celera led to just 1.2 papers a year over the next eight years. Even though the annual pace of Celera-linked papers rose rapidly after its IP was lifted in 2003, it never caught up to the rate of publication tied to the always-open non-Celera data.

Williams also looked at the number of diagnostic tests that were developed as a result of gene sequencing. Again, non-Celera genes were nearly twice as common in gene-based tests compared with Celera genes.

Add it all up, wrote Williams, and you get a pretty depressing picture of how much Celera delayed genetic research. "If Celera genes had counterfactually had the same rate of subsequent innovation as non-Celera genes, there would have been 1,400 additional publications between 2001 and 2009 and 40 additional diagnostic tests as of 2009," she concludes.

We can't know for sure whether opening up Celera's database would have led to the same rates of innovation. Perhaps Celera's genes weren't that interesting to begin with. And, of course, the quantity of papers produced in a given year says nothing about the quality of the work. But at the very least, Williams's research shows us how we can apply the idea of opportunity costs to intellectual property.